_____ Pakex's French subsidiary, Sakex, sold inventory on credit to a British customer on 12/22/06. The sale was denominated in pounds, and the customer paid in full in March 2007. From the sales date to 12/31/06, the pound strengthened relative to the franc (which is Sakex's functional currency). Sakex's gain should be reported as

Question

Quizplus · Accepted Answer

The gain from the strengthening of the pound relative to the franc (Sakex's functional currency) from the sales date to the year-end should be recognized as a foreign exchange (FX) gain in the current income statement. This is because changes in exchange rates affecting receivables denominated in a foreign currency are recognized in the income statement in the period in which the exchange rate changes.

_____ Pakex's French Subsidiary, Sakex, Sold Inventory on Credit to a British